The Missing Take-Out

Almost every restaurant does take-out these days. Funny thing is, they usually charge as much for take-out as they do for dine-in. How is that possible? Dine-in requires servers and a lot more real estate. Shouldn't it be cheaper? As it stands, the only thing you save by doing take-out is the tip.

Do you think that take-out is cross-subsidizing dine-in? Then why don't people open restaurants that only do take-out? Or to be more precise, since there are lots of low-quality places that only do take-out, why don't people open high-end restaurants without a dine-in option? As far as I can tell, such restaurants are virtually non-existent.

I talked this over with Tyler Cowen and Ilia Rainer over lunch. I think we've got a good answer. But first, please tell me: What's yours?

Comments and Sharing

I can tell you that in London a few years back, my family saw some restaurants where they offered dine-in and take-out options, with take-out being cheaper. At the time (I was just a kid and hadn't studied economics yet) I joined my family in being angry about this. It was so unfair! It was a cold day, and they wanted us to take our food and eat out there in the cold street?

This could be the explanation. Maybe different prices for take-out and dine-in would be perceived as "unfair" by customers, and undermine business. Or maybe the restaurateurs themselves feel that would be "unfair." Perhaps there are restaurateurs out there who say to themselves, "Ah, if only I could raise prices for dine-in customers, to cover the extra expenses! But one can't sacrifice one's honesty for the sake of profit."

My guess for why high-end restaurants don't do only take-out is that the very essence of high-end is dining-in. Also remember, take-out is for those people who value time over the ambiance of a place. The people who are most likely to pay for high-end food are also the most likely to want to spend the time and dine-in the restaurant.

Restaurants are also stages upon which people can broadcast their status. There's the experience of eating lunch at Le Cirque 2000 knowing that millions toil outside its doors. Meanwhile, you chat up with your fellow CEOs over information that could have been exchanged and verified over an IM Chat.

One recent example stands out for me. In last week's FT Weekend, the FT took Lou Dobbs out to eat at the Four Seasons Grill. Over this expensive meal, Dobbs railed against what he referred to as "the libertarian fallacy", though I haven't been able to figure out quite what he meant. But there he was! On top of the world, as I read and chewed my 99 cent ramen.

Take-out usually implies a wait between preparing the food and eating it as the person has to drive home or to a park to eat it. With all restaurants, the food becomes worse as time passes. However, with low-end restaurants, the cost (in terms of lost quality) is relatively lower than with high end food.

That doesn't necessarily explain why the price for high-end food is the same for takeout and dine-in at restaurants who offer both (I think Arnold explains that well with the beverage profits), but it might be a reason why there aren't any exclusively high-end takeout restaurants.

I'd agree with Arnold and say drinks, but not necessarily just overpriced wines. Often, I think people will order more expensive drinks in restaraunts, but would likely settle for water when eating a meal at home. So you can't just compare the drinks to the grocery store costs; you have to compare them to the water through Brita pitcher costs.

Not having to go to a restaraunt, wait, and then leave would seem to be of a particular advantage. A lot of it could simply be what's on television (and an inability to use TiVo or program a VCR). Another value of being somewhere else is that often with small children, getting them to behave in restaraunts is quite a challenge, and whether they behave or not you will likely draw extra attention.

Another compelling reason to get takeout, of course, is that it may not be necessary to purchase an entree for each party involved. This could be because someone isn't hungry, or because an entree is so large that a couple people could eat it, but they would feel awkward ordering only that (and may in fact face some sort of surcharge).

Take-out implies eating on the run. Ever tried dining on an order of crab legs or shrimp pasta while driving a stick-shift? Alternatively, who wants to take a juicy prime rib home only to ruin it in the microwave in time to watch C.S.I. Miami?

My guess is that good business models are still in development. I think we will be seeing more in the future, and we may see lower prices for take out service, but there's a learning curve and it will take time. Krues and Muer is opening restaurants which focus more on take out (I think they may have a takeout only operation).

Another problem is that it's hard to take the leap from a traditional restaraunt to a take out only operation. Most take out is still tied to dine in a resaurant, making it difficult really focus on the take out. Good locations for dine in aren't likely to be good for takeout and a high volume takeout operation would probably interefer with the dine in operation. I think this makes it difficult to develop the knowledge base needed for a successful stand alone operation.

Earlier, I mentioned only the status goods that accrue to the patron's of posh restaurants. There are also those reaped by the chef and owner who have increasingly become more like impresarios over the last 20 years.

I wonder if Brian's argument against education applies to culinary school as well. Why not rely solely on apprenticeship? Why spend so much time and money learning from Cordon Bleu if not because it's the only way to prove you have the right stuff as an impresario?

I like Arnold's suggestion. My other thought is that for a high quality food experience taste and ambiance are complements, so that people are willing to pay more for taste if it is accompanied by ambiance.

Thus one cannot profitably sell high quality food that doesn't come with a nice setting.

Take-out is just another way that humans have come up with for taking out the "middle man". It's right up there with e-commerce and the telephone systems where you talk to recordings instead of actual people. Take-out is as easy as dialing a number, saying a name, and waiting for the delivery. We have become a lazy, reculsive society. Have you ever wondered why they ask you at Wendy's whether you'll dine in or not? I have. Why do they have to put it in the system whether or not you're eating in the restaurant or taking it home? Why does it matter? Where I live, take-out is cheaper than eating at the restaurant. But now, with gas prices climbing up the charts, there is a delivery fee to be a hermit and have your food delivered to you. Maybe that's the hidden cost of the take-out increase of price.

Aren't we forgetting the huge premium paid to dine-in: the tip? 15-20% of the bill on average on the top is nothing to sneeze at. $100 takeout translates to $120 dine-in. Service staff is paid almost nothing compared to what they make in tips, and in some restaraunts those tips find their way back to some of the kitchen staff as well. Most of the extra cost of dining in is the extra real estate overhead required. It doesn't surprise me to think that some combination of beverage ordering, selling up (your servers have a chance to recommend dishes on which you make more profit) and advertising more than make up the cost difference.

Blogging software: Powered by Movable Type 4.2.1.
Pictures courtesy of the authors.
All opinions expressed on EconLog reflect those of the author or individual commenters, and do
not necessarily represent the views or positions of the Library of
Economics and Liberty (Econlib) website or its owner, Liberty Fund,
Inc.

The cuneiform inscription in the Liberty Fund logo is the
earliest-known written appearance of the word
"freedom" (amagi), or "liberty." It
is taken from a clay document written about 2300 B.C. in the Sumerian city-state of Lagash.